TAIPEI, Taiwan Separate consortia in Taiwan and China are pecking away at a new DVD format that would enable disk and player manufacturers to evade royalty payments to Japanese, American and European companies, which now have a lock on the technology. They hope to introduce the specification by the end of the year.
More than a year ago, China said it was developing a format called Advanced Versatile Disc (AVD) that would be used only in the Greater China region, including Taiwan, Hong Kong and Macau. Some considered it bluster, a ploy by Chinese manufacturers to strike a better deal on royalty payments to the DVD Forum. But the establishment of a Taiwanese consortium now adds greater substance to the threat.
After several months of exploring the feasibility of AVD, 19 Taiwanese companies quietly came together in April to start work on a next-generation standard that would not use the format specified by the DVD Forum as a baseline technology.
The Taiwan standard is being called Enhanced Versatile Disc (EVD) and is basically compatible with China's AVD. The capacity potential is about 1 Gbyte higher than that of today's single-sided, one- and two-layer DVDs. Current red-laser technology will be implemented.
The consensus here is that with the help of Taiwan, China will attempt to repeat an earlier effort in which it developed Super Video CD (SVCD) as a foil to the Video CD format, allowing manufacturers to duck royalty payments to Philips, JVC, Sony and Matsushita. "Mainland China is hoping for a breakthrough," said Wang Shyh-Yeu,the R&D director at disk maker Ritek Corp., which is part of the newly formed EVD consortium. "We hope we can create some patents through this standard but, to be honest, it is very difficult. The compression part is dominated by U.S. and Japanese companies."
An Acer Labs spokesman said, "It is reasonable to believe the Chinese are looking for a way around the patents," but he declined to say whether Acer is working on EVD. Taiwan's largest supplier of DVD chip sets, MediaTek Inc., could not be reached for comment.
Although China represents a small share of DVD player sales, it is growing in prominence. Global DVD player shipments last year rose to 30 million units from 19 million in 2000, according to Cahners In-Stat Group. About 3.5 million were sold in China, where Video CD players are still mainstream. The projection for 2002 DVD player shipments is 50 million units, with about 8 million going to China.
Regional-format developers hope to avoid $15-$20 in DVD-player royalty fees.|
Increasing pressure to pay royalties, combined with falling DVD player prices, has intensified efforts to develop China's own standard.
The DVD6C licensing group, composed of Hitachi, Matsushita, Mitsubishi, Toshiba, JVC and AOL Time Warner, earlier this month laid out a plan to woo domestic Chinese manufacturers to the group's royalty scheme of up to $4 per unit. The 6C group offered royalty-free sales through Dec. 31 of this year to units built for the domestic Chinese market. The waiver is available only to manufacturers that sign a license before June 30. There is still no word on whether Chinese manufacturers will buy into the plan.
Get in line
Separately, the so-called 3C group consisting of Philips, Sony and Pioneer is also demanding that Chinese manufacturers begin paying royalties on DVD players. Any party that makes, uses, imports or sells products covered by the licensed patents is expected to contact both the 6C and 3C groups and pay them separate fees. Furthermore, because the DVD format uses the MPEG-2 video standard, another separate royalty must be paid to MPEG LA, the MPEG licensing authority.
All the assorted payments add up to $15 to $20 per unit, said Michelle Abraham, senior analyst at Cahners In-Stat. Besides MPEG, 6C and 3C, they include payments for Dolby sound and to owners of various copy protection systems. Most Chinese manufacturers have refused to pay, just as they refused to pay Video CD royalties.
Emerging splinter formats such as EVD or AVD are keeping consumer electronics and silicon vendors on their toes. A Philips spokeswoman said, "We do not know how EVD is going to be different from DVD. We have been informed only recently about these developments."
Though details are still sketchy, many industry sources suggested that the new format will offer the Chinese domestic market high-resolution video some say high definition (HD), others say full D1 video using red-laser technology in time for the 2008 Olympics in China.
"For a long time now the Chinese government in Beijing has wanted to create [China's own] IP [intellectual property] to balance the flow of DVD royalties," said Didier LeGall, vice president of home media products at LSI Logic Corp. (Milpitas, Calif.). "They have been working on adding HD on a red laser. I think it is appealing because HD is the future, and the Chinese government is very keen to use consumer HD to showcase the 2008 Olympics."
But LeGall cautioned, "The key to any new format and its credibility is the content, and this is the biggest unknown on any HD-DVD format." He added, "You can expect Hollywood to be particularly concerned with the potential HD piracy."
Content, compatibility concerns
Another question is exportability. "The biggest problem with [a new China format] is, can Chinese OEMs export this proprietary player?" said In-Stat's Abraham. "Yes, China is a big market, but the United States and Europe still remain by far the two largest DVD markets."
Several industry sources confirmed that emerging EVD or AVD players will be capable of playing back both EVD/AVD disks and DVD disks. Given that DVD is already a huge success on the global market, an attempt to develop a new-format player that does not play DVD disks is suicidal, they said.
The next question is whether DVD-format license holders can go after Chinese OEMs for royalties on products labeled as EVD or AVD players. The question here is whether a proprietary product that plays both EVD/ AVD and DVD disks can be considered, technically, not a DVD player. The distinction is crucial to many that hold essential DVD-format patents.
Clearly, any player that plays back a DVD disk is infringing on the DVD patent portfolio, observers said. "It's either you do or you don't," said one industry executive. But other industry sources in Japan acknowledged that if players bear no official DVD logo, it would be difficult for the 6C or 3C groups to go after them.
Both of those groups are prepared to stop imports of unlicensed DVD players and to bring lawsuits against companies that ship them.
"In February, the EU [European Union] held shipments of 10,000 players due to royalty nonpayment at the urging of the 3C group," In-Stat's Abraham said. She also pointed out that Sony Corp. won a suit in the United States against Apex, and that Apex is now paying 3C royalties as a result.
Chip companies are split in their assessment of how significant an EVD or AVD format might become. A spokeswoman at Zoran Corp. said, "A majority of our customers [in China] are interested in exporting their players to the U.S. and European markets. They want to build players that abide by the standard." LSI Logic, armed with an HD-capable multiformat media processor called Domino, has "communicated with many people in China," LeGall said. "We are not against this format [but] we are perplexed" about where its proponents could obtain compelling HD-DVD content.
Interestingly, Taiwan's largest research group is leading the EVD effort, at the request of Chinese counterparts to help advance the spec. The quasigovernmental Industrial Technology Research Institute (ITRI) helped bring together the consortium here, despite its role as Taiwan's representative to the DVD Forum.
Derray Huang, deputy general director of ITRI's Optical Electronics and Systems Lab, said the logic format of EVD will differ slightly from DVD's, but he declined to offer specifics. "Some technology is in the DVD range, but some is different," Huang said, adding that a year-end introduction is possible. "It depends on the key components, like chip sets." All DVD player components will be the same, he said, with the exception of an upgrade for the chip set that would allow both DVDs and EVDs to play on the same machine.
Huang acknowledged that the DVD Forum would not be happy with ITRI's decision to pursue a separate format, but he maintained that the move is no different from what several key forum members have also done. Earlier this year, nine companies including Matsushita, Philips, Samsung, Sharp and Sony said they would develop a successor to DVD technology, the Blu-ray Disc, a denser, blue-violet-laser-based medium that is not compatible with current DVD technology. The companies said they would conduct the work outside of the DVD Forum.
"We hope there can be one single format," Huang said, "and maybe someday we can talk with the forum about EVD." In the meantime, ITRI is also developing Blu-ray products, such as disks and pickup heads.
Not everyone in China and Taiwan is backing EVD or AVD, however. Bo Wu, founder and chief executive officer of EnReach, which helped China develop its SVCD specification in 1997, said, "EVD is more like a full D1 MPEG-2 version of SVCD." He said his company is not involved in the effort, "nor are most of the major DVD OEMs in China as far as I know."
With DVD player prices on track to drop to about $70 by year's end, Wu said, "To us, it is too late [to foist a new format on] the market. . . . All players will have to play DVD disks, because there are so many titles out there now, inside China."